When Does Establishing a Good Startup Culture Outweigh Being Cheap?
by Mark Suster
Almost every startup company starts off “scrappy” and there’s a well established culture in the tech startup scene to embrace the “be cheap at all costs” mentality.
So we have the proverbial garage startup or the small team working on desks that are handmade out of scrap wood or former doors from a construction site. But at what point do you need to flip from scrappy to “scale-y”? Um, well, that word choice doesn’t exactly work.
I have seen this problem up close so many times. You have a seed-stage company who had raised $500,000 and then later raises $8 million still acting like a seed-stage startup. Similarly you have the A-round company who has raised a $25 million round still behaving like a 10-person startup with the CEO still micro-managing every decision.
I have weighed in on this topic before. I wrote that the most controversial hire after an A-round is actually an office manager / admin person for the company. My rationale is simply. The CEO and founding team are the most critical people in the company and at some point when you have money you want their time focused as much as possible on the most strategic issues (hiring key staff, developing product, sales, PR, business development, pricing, marketing materials, investor relationship) and not on admin (entering general ledger entries, scheduling group meetings, handling food orders for team meetings, etc.).
Sounds like a no-brainer but you’d be surprised.
There is so much folklore about the “cheap ass founders” in our tech industry that some people take this too much to heart. I find myself frequently saying, “Dude, you have got to get better office space than this. I can’t imagine anybody enjoys coming to this office every day.”
What is charming in your lean first year because you’re feeling like a true startup begins to become annoying when you’re tired of a loud work environment, a single bathroom stall for 40 people or uncomfortable chairs, bad lighting or old computers. While that extra commute to be in an up-and-coming neighborhood sets the right tone in the early days it becomes a limiting factor when you need productivity more than belt tightening.
If you’re not familiar with Maslow’s Hierarchy of Needs you should be. It’s relevant to many things that dictate human behavior and super relevant to startups. The basic premise is that as humans we have the most basic of human needs that when they aren’t met make it impossible to become happy even when we have “higher order” needs met. These include food, water, air, sex, etc. The next level of the hierarchy is safety – security, health, basic money & employment. Only once your physiological & safety needs are met can you truly begin to find happiness from friends, family and relationships.
And that’s exactly the issue. Even if you’re winning business, in the press, raising capital and generally doing great things – over time a shitty office environment begins to wear on you. Maslow. Day-in and day-out the basic stuff matters. Comfortable chairs. Peace to get work done. Clean bathrooms. A kitchen. A reasonable commute.
And I see many companies blow this. My recommendation any time I provide a round of A or B capital is to spend properly on decent offices. Of course there’s always a balance because you don’t want extravagance. But a great office environment will yield so many intangibles that you can’t measure.
A great office helps with recruiting. It helps with productivity and output. It helps with employee retention. A great office helps with the intangibles of “well being” that are psychologically hidden in the lower levels of Maslow’s Hierarchy of Needs. A good office / work environment is the foundation of establishing a strong company culture and team spirit. It’s not everything – but it helps.
So while I certainly don’t advocate being extravagant with offices when you first start your business and I never advocate moving into an ivory tower – I do recommend you stop being such a cheap ass and get your employees something they can be proud of and feel comfortable in. Put up pictures. Make it fun. Imagine all the hours that your staff will be spending there and make their daily lives better.
Again, I know all this sounds so blindingly obvious. But I assure you many companies end up penny wise, pound foolish.